Chinese Companies and Western Laws. Ugh.

We are constantly writing about American and European companies that do business in China or with China without sufficiently recognizing that China isn’t Frankfurt and Chinese law is not British law and Chinese courts are not American courts. In other words, they may give lip service to the idea that they must operate differently in China than in the West, but they are not truly drinking that Kool-Aid yet.

But compared to Chinese companies coming to America, Western companies in China are the gold standard. The way many (most?) Chinese companies operate overseas give lawyers the shivers and ought to give everyone pause.

The following are just some of what our international lawyers have seen:

Chinese company wanted to retain our lawyers to conduct due diligence on a quite expensive commercial building it was buying in California, but refused to pay our rates or any other law firm’s rates and ended up buying the building without a lawyer. We subsequently learned that the amount they paid for the building nearly dollar for dollar matched the amount they would need to pay to clean up the environmental problems they apparently unknowingly bought along with the building, which pretty much any first year lawyer would have detected.

We are getting countless American (mostly) employees (from CEOs to COOs to Sales Managers to in-house lawyers) at Chinese companies in the United States contacting us, almost pleading for us to “convince the head office back in China” to hire us. We don’t do that because it pretty much never works and even if it were to work, unwilling clients are not exactly what we want. In many of these cases the American (and sometimes European companies that contact our Barcelona office) employees are being told to use translations of Chinese language contracts for things as varied as employment contracts and sale agreements. Trust me when I tell you that using a Chinese contract in the United States makes about as much sense as using an American contract in China, which is none at all.

The head of HR for the American operations of a Chinese company came to us to have us draft an employee termination/settlement agreement with one of its California employees, but the Beijing home office insisted the HR head (who had lived in the United States for only about five years) draft this without any lawyer help and she did. Two months later, the California employee sued the company alleging (100% rightfully) that the settlement agreement was invalid and seeking the full amount already paid to him to get him to sign the first settlement agreement, and more. The thing is this exact same thing has happened twice.

We were involved in a fairly large lawsuit against a Chinese company’s foreign subsidiary and in an apparent effort to cut costs, one of the higher ups at the American subsidiary started emailing our client and in those emails saying things he never should have been saying. I have never seen an American or a European company go so rogue during litigation and I am convinced that the emails from this employee hurt the other side’s case and enabled our client to achieve a better settlement than we ordinarily would have.

I have plenty more stories, but only the above are old enough and common enough and can be told vaguely enough so as not to reveal anything the least bit secret.

But what spurred me to write this is the following paragraph I recently received from a very experienced and very international executive at a Chinese company’s U.S. subsidiary in response to my telling him that I keep planning to write something about Chinese companies overseas but that I really do not know what to say beyond talking about how they mostly seem to refuse to adapt.

When the Japanese companies came into the U.S. in the 80s, they started off with the same mistakes as we are seeing with Chinese companies. They tried to operate in the U.S. based on Japanese models. It did not work. So what did they do? They organized research teams, figured out the right way to operate, and on the second wave they did very well. The Chinese companies are completely different. When things don’t work for them they blame the foreigners within their own company. They do no research or thinking. They just double down on their failed strategy. So it is not clear what your post would say, other than to say that these Chinese companies are doomed to fail.

What are you seeing out there? Are Chinese companies adapting better to the United States and to Europe outside the legal arena? Are they really any worse than companies from other countries, or is it just a matter of time?

Dan Harris

Dan Harris is internationally regarded as a leading authority on legal matters related to doing business in China and in other emerging economies in Asia. Forbes Magazine, Business Week, Fortune Magazine, BBC News, The Wall Street Journal, The Washington Post, The Economist, CNBC, The New York Times, and many other major media players, have looked to him for his perspective on international law issues.